Non-Traded REITs

SSEK Law Firm Investigates Ex-Broker James T. Flynn and Voya Financial Advisors

Published on: October 3, 2019 | by Shepherd Smith Edwards & Kantas, LLP

If you are an investor who suffered financial losses while working with former Voya Financial Advisors (VOYA) broker James T. Flynn, please contact Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) today.

Our broker fraud lawyers are investigating claims brought by the former clients of Mr. Flynn while he was a registered broker with Voya Financial from 2013 to 2017 and previous to that while he worked with other financial firms. Voya fired him in 2017.

With 18 years of experience in the industry, Flynn, who was barred by the Financial Industry Regulatory Authority (FINRA) in 2018 after he failed to respond to the self-regulatory organization (SRO)’s request for more information in a probe involving him, has forty disclosures on his BrokerCheck record.

SSEK Investigates Darren Oglesby and Money Concepts Capital

Published on: August 2, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Did you invest with Darren Oglesby (Monroe, LA) and/or Money Concepts Capital Corp. and suffer losses in GPB Capital or other private placement transactions? If so, we may be able to help you recover your losses.

Shepherd, Smith, Edwards & Kantas, a national law firm dedicated to representing wronged investors, is investigating claims on behalf of current and former clients of Darren Oglesby and/or Money Concepts Capital Corp. who were sold GPB Capital and other private placements, such as non-traded real estate investment trusts (“REITs”). Private placements, such as GPB Capital, are often marketed to investors as safe ways to obtain a higher return. In truth, these investments are high-risk securities and typically illiquid and impossible to accurately price.

GPB Capital is a good example of what can go wrong with such private placements and why they are supposed to only be sold to very sophisticated investors willing to take high risks. For GPB Capital, the company raised a reported $1.8 billion from investors nationwide. Nevertheless, it has been more than a year since the company failed to make required SEC reports. Since then, financial information has been consistently delayed, the company’s auditor quit, several regulators have opened investigations into GPB Capital, the FBI raided the company’s offices in New York, a former business partner accused the company of being a “Ponzi scheme” and a current business partner has publicly reported accounting irregularities.

Purshe Kaplan to Pay $9.5M to Native American Tribe

Published on: July 3, 2019 | by Shepherd Smith Edwards & Kantas, LLP

An alternative investment fraud settlement has been reached between Purshe Kaplan Sterling Investments and the Saginaw Chippewa Indian Tribe of Michigan, in which the independent broker-dealer will pay $9.5M. The tribe had filed an arbitration claim contending that it didn’t know that it was paying the firm millions of dollars in commissions on $190M of alternative investments that were purchased through former Purshe Kaplan broker Gopi Krishna Vungarala between 2011 and 2015, including shares in business development companies and non-traded real estate investments trusts (REITs).

Vungarala was not only the Michigan tribe’s broker but also he served as its investment manager, tasked with overseeing its portfolio. He has been accused by the Financial Industry Regulatory Authority (FINRA), too, of to the tribe about the commissions.

The self-regulatory authority (SRO) recently sought to bar the Purshe Kaplan broker from the industry after the alleged fraud occurred—a motion that is on appeal. FINRA also ordered him to disgorge nearly $9.7M plus interest. The SRO said that Vungarala neglected to tell the tribe that it qualified to receive over $3.3M in volume discounts, which would have lowered how much he made in commissions from the sales.

REIT Investors Suffer Major Losses

Published on: June 25, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Trouble is brewing with a number of nontraded real estate investment trusts (REITs) and now, investors are filing claims for their losses. One of the REITs, NorthStar Healthcare Income, Inc., suspended distributions to investors on February 1.

Closed to new subscriptions since December 2015, the publicly registered REIT was set up to acquire, originate, and oversee securities in the healthcare industry. Northstar told investors that challenges involving performance and operations had resulted in a reduced estimated value/share in 2018 compared to 2017—from an $8.50 NAV/share at the end of June 2017 to $7.10 NAV/share in December 2018.

The nontraded REIT’s board cited a number of reasons for the decrease: a cash flow affected by the senior housing market, labor costs related to the investments that have impacted the REIT’s portfolio, more cash flow issues—this one impacting the skilled nursing industry—and assets’ income losses.

NorthStar Healthcare REIT Investors Suffer Losses as Income Distributions Are Suspended

Published on: March 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

If you are an investor in NorthStar Healthcare Income, you very likely received a letter last month notifying you that monthly distributions from this investment have been suspended. According to NorthStar’s board, the publicly registered nontraded real estate investment trust’s (nontraded REIT) portfolio has been undergoing “operational and performance challenges” that as of the end of June 2017 has resulted in a “lower estimated value/share” of the NorthStar Healthcare’s common stock. The nontraded REIT has since determined that in order to protect both capital and its financial state, suspension of these distribution payments is necessary.

The NorthStar Healthcare Inc. nontraded REIT was set up to originate, acquire, and oversee healthcare industry-related investments, including debt, equity, and securities investments involving healthcare real estate. Sources note that between 2013 and 2018, it raised about $2B and set up a portfolio involving more than 650 properties.

However, NorthStar Healthcare Income began reducing distribution rates in December 2017. By October of last year, it had notified investors that it would only buy back shares from an investor if qualifying disability or death were factors. In December 2018, the nontraded REIT reduced its net asset value from $8.50/share to $7.10/share. Now, with the distribution suspension, some investors are standing to lose not just their monthly distributions, but also they could see a substantial decline in value on their principal that they originally invested.

Real Estate Investment Trust Cases: SII to Repay Clients Who Bought Non-traded REITs, Trustmont Financial Group is Ordered to Pay Client $1M, and Vereit Settles with More Investors Over Accounting Fraud Claims Against ARCP

Published on: October 3, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SII Investments to Pay Back Clients Over Nontraded REITs

Massachusetts Secretary of the Commonwealth William Galvin is ordering SII Investments Inc. to repay clients who purchased non-traded real estate investment trusts through the independent brokerage firm. According to Galvin’s office, SII did not properly supervise these transactions.

It was last year that the Massachusetts regulator filed charges against SII, accusing the financial firm of failure to supervise and “dishonest or unethical conduct” related to non-traded REIT sales made to state residents. Galvin accused the broker-dealer of inflating the liquid net worth of clients by counting their annuities as liquid assets rather than non-liquid ones.

Mid Atlantic Capital Ordered to Pay Couple $922K Over KBS-Sponsored NonTraded REITs, Sonoma Ridge Partners Private Placement and Exchange-Traded Fund Investments

Published on: December 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Panel is ordering Mid Atlantic Capital Corp. to pay David Wellman and Beverly Bien $922K. The married couple sued the independent brokerage firm for losses they sustained after they invested in Sonoma Ridge Partners (a real estate private placement), KBS-sponsored nontraded REITs, silver and gold exchange-traded funds (ETFs) like iShares Silver and Market VectorsGold Minors, and Contago Oil and Gas securities. They alleged that Mid Atlantic Capital Corp. was liable for negligent misrepresentation, negligence, omissions, breach of fiduciary duty, breach of contract, negligent supervision, restitution, common law fraud, and violation of Colorado’s Securities Act.

The couple was close to retirement age when they made the investments several years ago prior to the 2008 economic collapse. According to the couple’s legal team, among the issues that they believe were problematic is that Mid Atlantic’s two brokers that managed Sonoma Ridge Partners were not the same brokers who marketed and sold the private placement to investors. The claimants believe that this presented a conflict of interest.

Previously called the Jadda Secured Senior Mortgage Fund, Sonoma Ridge Partners was promoted as an alternative to low-yielding CD’s, as well as to the stock market with its volatility. It was supposed to render 9-11% annual yields. Also, although Bien bought most of the illiquid real estate investments, she lacked the required net worth necessary to qualify as an accredited investor under private placement industry rules.

Securities Fraud Cases: VFG Securities Settles With FINRA Over Nontraded REIT Sales, Massachusetts Seeks To Ban Trader and His Software Company, and Utah Man Who Bilked Over 5,700 in $25M Fraud Gets Prison Sentence

Published on: November 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Broker-Dealer Owner and His Firm Settle SEC Case Alleging Overconcentration of Investor Money In Illiquid Investments

Jason Vanclef and his brokerage firm VFG Securities Inc. have settled the Financial Industry Regulatory Authority’s case accusing them of not adequately supervising their brokers so that clients’ portfolios did not end up concentrated in illiquid investments. Vanclef and VFG Securities, however, are not denying or admitting to the claims made in the complaint.

According to FINRA, from 11/2010 to 6/2012, nearly 95% of the broker-dealer’s revenue came from direct participation programs (DPP) and nontraded real estate investment trusts (nontraded REIT) sales. The illiquid investments were sold retail customers.

FINRA claimed that Vanclef had used “The Wealth Code,” which was the book that he authored, as a sales tool to promote investing in DPPs and nontraded REITs and to attract potential investors. The settlement with the regulator notes that in the book Vanclef repeatedly touted both types of illiquid investments as offering capital preservation and better returns—claims that FINRA said are “inaccurate and misleading” and conflict with information that the firm offered in prospectuses for the nontraded REITs and DPPs.

Texas Securities Cases: IMS Securities to Pay $100K Over Variable Annuity Exchanges, State Regulator Bans Broker from Making Nontraded REIT Recommendations, and Former Dallas Billionaire Sam Wyly to Pay $198M To Settle Fraud Case

Published on: October 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Texas-Based Brokerage Firm Accused of Inadequate Supervision Involving VA Exchanges

The Financial Industry Regulatory Authority is ordering IMS Securities Inc. to pay a $100K fine. The Texas-based brokerage firm is accused of failures related to its monitoring of variable annuity exchanges. By settling, however, it is not denying or admitting to the allegations.

According to the self-regulatory authority, the firm exhibited inadequate supervisory procedures for “problematic rates of exchange” in transactions involving variable annuities. FINRA claims that from 7/ 15/13 through 7/8/14, IMS Securities depended on its CFO to review annuity exchanges but did not provide tools or guidance to help look for “problematic rates of exchange.” The broker-dealer is accused of not probing possibly “problematic patterns” of VA exchanges and not enforcing written supervisory procedures related to consolidated reports.

Independent Brokerage Firms that Sold UDF REITs May Be Subject to Arbitration Claims Over Alleged Ponzi Scam

Published on: February 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, a number of independent broker-dealers could find themselves in legal hot waters, should investors decide to pursue them through arbitration for selling UDF real estate investment trusts. United Development Funding is under investigation over allegations that the UDF IV was run for years like a Ponzi scam. UDF IV was initially a nontraded real estate investment trust that later became listed as a publicly traded REIT.

The article goes on to name four firms that sold the UDF REITs or private deals to investors: Financial Services Inc., Berthel Fisher & Co., VSR Financial Services Inc., and Centaurus Financial Inc. Other firms also have sold UDF REITs to investors.

The allegations against UDF first surfaced in December in an anonymous post published on Harvest Exchange, an investor website. Among the accusations: that the UDF umbrella demonstrated traits “emblematic” of a Ponzi scam; new capital was used pay existing investors; and newer UDF companies were giving liquidity to earlier UDF companies to pay earlier investors. Noting that a hedge fund had created a short position in UDF IV shares, the company accused the fund of trying to illegally profit by depressing and manipulating UDV IV’s share price.

Recently, J. Kyle Bass of Hayman Capital also published a website about the allegations. On the site, Bass acknowledged that Hayman maintains a short position in UDV IV common stock.
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